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China Update: Shanghai reopening and May PMI data bouncing off lows

Macro 5 minutes to read
Redmond Wong

Market Strategist, Greater China

Summary:  The situation of COVID-19 outbreaks and related lockdowns have been improving in China. Shanghai is scheduled to orderly reopen from June 1. With the reduction in the number of cities being under strict pandemic control and relaxation of lockdown measures, May PMIs have bounced off from their April lows and shown some early signs of potential recovery.


COVID-19 outbreaks are waning and lockdowns are gradually being lifted. At the highpoint of almost 30,000 cases back in mid-April, it was estimated that 360 million people (25% of China’s population) in 44 cities (accounted for about 38% of national GDP) were under some sorts of lockdown in China.  The situation has been improving with daily new local cases having fallen to 97 cases as of May 30 (Figure 1).  The number of cities under lockdowns or some kind of mobility restriction came down to 16 cities (accounted for about 10% of China’s population and 14% of national GDP) towards the end of May.  On May 30, only six provinces (Jilin, Sichuan, Yunnan, Henan, Guangdong and Jiangsu) and three municipalities (Shanghai, Beijing and Tianjin) still recorded new locally transmitted cases.  After Shanghai coming out of full lockdown from June 1, there will be no city being under full lockdown and the 15 remaining will be under partial lockdown or district-based mobility restriction and pandemic control. 

Shanghai will start lifting the lockdown on June 1, except for high/medium risk areas. The opening includes orderly resumption of public transport as well as private vehicle transport and allowing movements in and out of residential compounds.  Factories will be allowed to resume production and economic activities will gradually resume towards normal.  Residents are required to show negative results from nucleic acid (PCR) tests conducted within the preceding 72 hours in order to get into many public venues and to use public transport. 

While remaining in contractionary zones, May PMI data bounced off their April lows. Official manufacturing PMI came at 49.6 in May, beating street consensus (Bloomberg survey 49) and bouncing 2.2 points from April’s 47.4.  Non-manufacturing PMI rose to 47.8 in May, well exceeding the 45.5 expected by economists and the 41.9 print in April.  The rate of contraction in economic activities has slowed as less cities being under lockdown or district-based mobility restriction and pandemic control. 

Production rose to 49.7 from 44.4.  New orders increased to 48.2 from 42.6.  New export order recovered to 46.2 from 41.6.  Economic activities represented by these key sub-indices were still contracting in May but were much less so than in April.  Large enterprises led the recovery in manufacturing PMI and was back to expansionary zone with a 51.0 print.  Among non-manufacturing activities, the construction sub-index moderated to 52.2 in May from 52.7 in April while the services sub-index bounced to 47.1 from 40.0.

Caixin manufacturing PMI is scheduled to release on June 1.  Bloomberg survey is calling for 49 (vs 46 in April).

If the trend of improvement in COVID-19 outbreaks and relaxation of lockdown continues, it is likely that PMI data will improve further in June. 

Figure 1: China Daily New Local Cases; Source: Bloomberg LP; Saxo

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